Investors are toasting alcohol distributor Conviviality (CVR:AIM) on Tuesday, the shares bid up 4.3% to 213.75p as the Bargain Booze-to-Wine Rack brands owner reports a cracking first half performance.
Encouragingly, seasoned retailer and CEO Diana Hunter reports growth across all three parts of the business, re-organised following recent strategically canny acquisitions.
SALES FIZZ
Click here to read today's trading update from Conviviality, a Shares favourite whose sales fizzed 211% higher to £783m in the half to 30 October.
The top line is benefitting from the transformational acquisitions of drinks wholesaler Matthew Clark and wine, beer and spirit distributor Bibendum, the integration of both businesses again said to be ahead of plan with cost synergies on track.
Perhaps the biggest positive is the performance of the newly formed Conviviality Direct division, in effect the acquired Matthew Clark and Bibendum businesses.
Conviviality Direct, serving 23,000 outlets ranging from prestige hotel chains to food-led pubs and restaurants, had a superb half. Like-for-like sales were up by a forecast-busting 5.2%, driven by new wins, among them Prezzo, and increased spend per account.
And as Investec Securities explains, 'opportunities remain in our view to deliver growth in both these areas, e.g. cross-selling non-wine products to Bibendum customers.'
RETAIL PRESSURE
While Conviviality Trading, the brand and wine agency operation, also uncorked strong growth, driven by festival and events business Peppermint, Conviviality Retail's performance was more subdued.
Trading as Bargain Booze and Wine Rack, the latter unit served up a 1.7% like-for-like sales decline against the prior year's tough comparative, one boosted by a summer marketing splurge, though total sales were up 2.5%.
Demonstrating its strengthened strategic positioning as a leading distributor in the drinks market, Conviviality Retail last week inked (28 Oct) a two year deal to supply beers, wines and spirits to wholesaler Palmer & Harvey too.
VALUE TIPPLE
Investec has a 'buy' rating and 280p price target for Conviviality, forecasting a step change in pre-tax profit to £45.5 million (2016: £21.7 million for the year to next April. Based on the broker's forecast earnings of 20.2p (2016: 14.2p) and a 12.6p (2016: 9.5p) dividend, Conviviality trades on a prospective PE of 10.6 and offers a bumper dividend yield approaching 6%.
Broker WH Ireland sees 'the potential for earnings upgrades to come through as further cost synergies are delivered'. Noting the grudging PE multiple and chunky yield, the broker also says 'we see the shares as fundamentally undervalued and maintain both our Buy recommendation and 300p price target.'
